UBS faces new legal battle in U.S. over mortgage securities

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ZURICH, Nov 8 (Reuters) - UBS Group AG, Switzerland’s largest bank, faces a another potentially costly legal battle as the U.S. Department of Justice is preparing civil charges over the sale of mortgage-backed securities in the run-up to the 2008 financial crisis.

UBS said in a statement on Wednesday it expected to be sued by the Justice Department as early as Thursday.

The bank said the claims were not supported by the facts or the law and it would contest any such complaint “vigorously.”

The Swiss bank is already fighting a court case in France, where authorities are pressing money laundering and tax fraud charges over its ties with French clients.

Zuercher Kantonalbank analysts said it was unclear how long the U.S. legal case might last and said it was hard to estimate what size fine UBS might face.

“It strikes us as important, though, that the matter is brought to a quick conclusion so that clarity prevails,” it said in a research note, keeping its “market weight” recommendation.

The analysts said more than half of the 1.2 billion Swiss francs ($1.20 billion) UBS has set aside for non-core legal risks were dedicated to the U.S. case. The outcome of the French case could determine whether UBS can increase share buybacks, ZKB also said.

UBS shares rose 1.3 percent in early trading.

A French court last month threw out a request by UBS for the constitutional court to drop money laundering charges and limit proceedings to complicity in tax fraud, which carries lighter penalties. UBS denies the allegations.

UBS Group AG, its French unit and six executives and former executives face charges of aggravated tax fraud and money laundering in an investigation into allegations they helped wealthy clients avoid taxes in France.

If found guilty of money laundering, UBS could be fined up to 5 billion euros ($5.71 billion). French criminal law lets judges enforce fines as high as half the amount laundered and in this case prosecutors estimate that up to 10.6 billion euros was denied to the French tax authorities.

The bank could also face damages awarded to the French taxman for the missing revenue, while its executives risk jail time.

UBS’s lawyer Jean Veil told the court on the opening day that the French state was asking for 1.6 billion euros in damages, which he said was excessive.

During the French investigation, UBS turned down a settlement offer of 1.1 billion euros made by the authorities, judicial sources have said.

($1 = 1.0017 Swiss francs)

$1 = 0.8750 euros
Reporting by Karen Freifeld in New York and Michael Shields in
Zurich. Editing by Jane Merriman